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Germany’s 10-year bunds leaped over 10bps to 0.74% before pulling back below 0.70% later in the session.
Likewise, US 10-year treasuries soared to year-to-date highs. Although it is hard to pinpoint the precise reason for the wild swings, low levels of liquidity were cited to be one of the reasons behind the volatility.
In addition, thin supply on the open market also contributed to the erratic moves as quantitative easing programmes meant that central banks hold more bonds on their balance sheets.
The volatility in the bond markets spilled over to other markets, kicking down the DAX by 1.7% and bumping US stocks slightly lower. However, downward momentum lose steam in the latter half of the European and US sessions as bond markets trim losses.
OPEC raised its forecast slightly for global oil demands to 1.18 million bpd, from a previous estimate of 1.17 million, and this is enough to draw out the oil buyers.
Dollar pullback could also have helped the oil rally. Brent crude climbed 3% to over $67. However, we could see some volatility in the crude markets with the US Energy Information Administration scheduled to publish official US oil supply data on Wednesday.
Ahead of the Asia open
While weak sentiments from the overnight session are expected to be manifested in Asian markets, the magnitude may be smaller as investors should find some relief from the slight recovery in the bond market. Furthermore, a raft of China data will hold the market’s attention.
The market is looking for a modest pickup for industrial production and retail sales to 6.0% year-on-year and 10.4% year-on-year respectively while urban fixed asset investment is expected to maintain at 13.5% year-on-year ytd. Ahead of the Asia open, we are calling for CSI300 4677 -71, Hang Seng 27411 +4, Nifty 8095 -31, and MSCI Singapore 386.82 -0.2.